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Following are six situations that involve the audit risk model as it is used for...

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Question

Accounting

Following are six situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.

Situation

Risk

1

2

3

4

5

6

Acceptable audit risk

Medium

Low

High

High

High

Low

Inherent risk

Medium

Low

Low

High

Medium

High

Control risk

Medium

High

Low

Low

Medium

High

Planned detection risk

Planned evidence

Explain what low, medium, and high mean for each of the four risks and planned evidence.

Fill in the blanks for planned detection risk and planned evidence using the terms low, medium, or high.

Using your knowledge of the relationships among the foregoing factors, state the effect on planned evidence (increase or decrease) of changing each of the following five factors, while the other three remain constant:

A decrease in acceptable audit risk

A decrease in control risk

A decrease in planned detection risk

A decrease in inherent risk

A decrease in inherent risk and an increase in control risk of the same amount

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